Apr 232017
 
 April 23, 2017  Posted by at 2:31 pm Finance Tagged with: , , , , , , , , , ,  


René Magritte Le Cri du Coeur 1960

 

Austerity is over, proclaimed the IMF this week. And no doubt attributed that to the ‘successful’ period of ‘five years of belt tightening’ a.k.a. ‘gradual fiscal consolidation’ it has, along with its econo-religious ilk, imposed on many of the world’s people. Only, it’s not true of course. Austerity is not over. You can ask many of those same people about that. It’s certainly not true in Greece.

IMF Says Austerity Is Over

Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor.

In Greece, the government did not increase spending in 2016. Nor is the country’s era of spending cuts at an end. So did the IMF ‘forget’ about Greece? Or does it not count it as part of the rich world? Greece is a member of the EU, and the EU is absolutely part of the rich world, so that can’t be it. Something Freudian, wishful thinking perhaps?

However this may be, it’s obvious the IMF are not done with Greece yet. And neither are the rest of the Troika. They are still demanding measures that are dead certain to plunge the Greeks much further into their abyss in the future. As my friend Steve Keen put it to me recently: “Dreadful. It will become Europe’s Somalia.”

An excellent example of this is the Greek primary budget surplus. The Troika has been demanding that it reach 3.5% of GDP for the next number of years (the number changes all the time, 3, 5, 10?). Which is the worst thing it could do, at least for the Greek people and the Greek economy. Not for those who seek to buy Greek assets on the cheap.

 

But sure enough, the Hellenic Statistical Authority (ELSTAT) jubilantly announced on Friday that the 2016 primary surplus was 4.19% (8 times more than the 0.5% expected). This is bad news for Greeks, though they don’t know it. It is also a condition for receiving the next phase of the current bailout. Here’s what that comes down to: in order to save itself from default/bankruptcy, the country is required to destroy its economy.

And that’s not all: the surplus is a requirement to get a next bailout tranche, and debt relief, but as a reward for achieving that surplus, Greece can now expect to get less … debt relief. Because obviously they’re doing great, right?! They managed to squeeze another €7.3 billion out of their poor. So they should always be able to do that in every subsequent year.

The government in Athens sees the surplus as a ‘weapon’ that can be used in the never-ending bailout negotiations, but the Troika will simply move the goalposts again; that’s its MO.

A country in a shape as bad as Greece’s needs stimulus, not a budget surplus; a deficit would be much more helpful. You could perhaps demand that the country goes for a 0% deficit, though even that is far from ideal. But never a surplus. Every penny of the surplus should have been spent to make sure the economy doesn’t get even worse.

Greek news outlet Kathimerini gets it sort of right, though its headline should have read “Greek Primary Surplus Chokes Economy“.

Greek Primary Surplus Chokes Market

The state’s fiscal performance last year has exceeded even the most ambitious targets, as the primary budget surplus as defined by the Greek bailout program, came to 4.19% of GDP, government spokesman Dimitris Tzanakopoulos announced on Friday. It came to €7.369 billion against a target for €879 million, or just 0.5% of GDP. A little earlier, the president of the Hellenic Statistical Authority (ELSTAT), Thanos Thanopoulos, announced the primary surplus according to Eurostat rules, saying that it came to 3.9% of GDP or €6.937 billion.

The two calculations differ in methodology, but it is the surplus attained according to the bailout rules that matters for assessing the course of the program. This was also the first time since 1995 that Greece achieved a general government surplus – equal to 0.7% of GDP – which includes the cost of paying interest to the country’s creditors. There is a downside to the news, however, as the figures point to overtaxation imposed last year combined with excessive containment of expenditure.

The amount of €6-6.5 billion collected in excess of the budgeted surplus has put a chokehold on the economy, contributing to a great extent to the stagnation recorded on the GDP level in 2016. On the one hand, the impressive result could be a valuable weapon for the government in its negotiations with creditors to argue that it is on the right track to fiscal streamlining and can achieve or even exceed the agreed targets. On the other hand, however, the overperformance of the budget may weaken the argument in favor of lightening the country’s debt load.

Eurogroup head Dijsselbloem sees no shame in admitting this last point :

Dijsselbloem Sees ‘Tough’ Greek Debt Relief Talks With IMF

“That will be a tough discussion with the IMF,” said Dijsselbloem, who is also the Dutch Finance Minister in a caretaker cabinet, “There are some political constraints where we can go and where we can’t go.” The level of Greece’s primary budget surplus is key in determining the kind of debt relief it will need. The more such surplus it has, the less debt relief will be needed.

That’s just plain insane, malicious even. Greek PM Tsipras should never have accepted any such thing, neither the surplus demands nor the fact that they affect debt relief, since both assure a further demise of the economy.

Because: where does the surplus come from? Easy: from Troika-mandated pension cuts and rising tax levels. That means the Greek government is taking money OUT of the economy. And not a little bit, but a full 4% of GDP, over €7 billion. An economy from which so much has already vanished.

The €7.369 billion primary surplus, in a country of somewhere between 10 and 11 million people, means some €700 per capita has been taken out of the economy in 2016. Money that could have been used to spend inside that economy, saving jobs, and keeping people fed and sheltered. For a family of 3.5 people that means €200 per month less to spend on necessities (the only thing most Greeks can spend any money on).

I’ve listed some of the things a number of times before that have happened to Greece since the EU and IMF declared de facto financial war on the country. Here are a few (there are many more where these came from):

25-30% of working age Greeks are unemployed (and that’s just official numbers), well over 1 million people; over 50% of young people are unemployed. Only one in ten unemployed Greeks receive an unemployment benefit (€360 per month), and only for one year. 9 out of 10 get nothing.

Which means 52% of Greek households are forced to live off the pension of an elderly family member. 60% of Greek pensioners receive pensions below €700. 45% of pensioners live below the poverty line with pensions below €665. Pensions have been cut some 12 times already. More cuts are in the pipeline.

40% of -small- businesses have said they expect to close in 2017. Even if it’s just half that, imagine the number of additional jobs that will disappear.

 

But the Troika demands don’t stop there; they are manifold. On top of the pension cuts and the primary surplus requirement, there are the tax hikes. So the vast majority of Greeks have ever less money to spend, the government takes money out of the economy to achieve a surplus, and on top of that everything gets more expensive because of rising taxes. Did I ever mention businesses must pay their taxes up front for a full year?

The Troika is not “rebalancing Greece’s public finances in a growth-friendly manner”, as Dijsselbloem put it, it is strangling the economy. And then strangling it some more.

There may have been all sorts of things wrong in Greece, including financially. But that is true to some degree for every country. And there’s no doubt there was, and still is, a lot of corruption. But that would seem to mean the EU must help fight that corruption, not suffocate the poor.

 


Yes, that’s about a 30% decline in GDP since 2007

 

The ECB effectively closed down the Greek banking system in 2015, in a move that’s likely illegal. It asked for a legal opinion on the move but refuses to publish that opinion. As if Europeans have no right to know what the legal status is of what their central bank does.

The ECB also keeps on refusing to include Greece in its QE program. It buys bonds and securities from Germany, which doesn’t need the stimulus, and not those of Greece, which does have that need. Maybe someone should ask for a legal opinion on that too.

The surplus requirements will be the nail in the coffin that do Greece in. Our economies depend for their GDP numbers on consumer spending, to the tune of 60-70%. Since Greek ‘consumers’ can only spend on basic necessities, that number may be even higher there. And that is the number the country is required to cut even more. Where do you think GDP is headed in that scenario? And unemployment, and the economy at large?

The question must be: don’t the Troika people understand what they’re doing? It’s real basic economics. Or do they have an alternative agenda, one that is diametrically opposed to the “rebalancing Greece’s public finances in a growth-friendly manner” line? It has to be one of the two; those are all the flavors we have.

You can perhaps have an idea that a country can spend money on wrong, wasteful things. But that risk is close to zilch in Greece, where many if not most people already can’t afford the necessities. Necessities and waste are mutually exclusive. A lot more money is wasted in Dijsselbloem’s Holland than in Greece.

In a situation like the one Greece is in, deflation is a certainty, and it’s a deadly kind of deflation. What makes it worse is that this remains hidden because barely a soul knows what deflation is.

Greece’s deflation hides behind rising taxes. Which is why taxes should never be counted towards inflation; it would mean all a government has to do to raise inflation is to raise taxes; a truly dumb idea. Which is nevertheless used everywhere on a daily basis.

In reality, inflation/deflation is money/credit supply multiplied by the velocity of money. And in Greece both are falling rapidly. The primary surplus requirements make it that much worse. It really is the worst thing one could invent for the country.

For the Greek economy, for its businesses, for its people, to survive and at some point perhaps even claw back some of the 30% of GDP it lost since 2007, what is needed is a way to make sure money can flow. Not in wasteful ways, but in ways that allow for people to buy food and clothing and pay for rent and power.

If you want to do that, taking 4% of GDP out of an economy, and 3.5% annually for years to come, is the very worst thing. That can only make things worse. And if the Greek economy deteriorates further, how can the country ever repay the debts it supposedly has? Isn’t that a lesson learned from the 1919 Versailles treaty?

The economists at the IMF and the EU/ECB, and the politicians they serve, either don’t understand basic economics, or they have their eyes on some other prize.

 

Nov 082016
 
 November 8, 2016  Posted by at 4:59 pm Finance Tagged with: , , , , , , , ,  


Joe Schwartz/Jewish Museum May Day Parade, New York City 1936

Neither candidate in the US presidential election has had many specifics to offer on their economic ideas and projected policies, and that may be a smart move for both. If only because none of the two has indicated any real understanding of what awaits America as per November 9. And I don’t mean where the stock markets will be tomorrow morning, or the price of gold, though short term volatility is obviously certain.

The November 7 rally on Wall Street made plenty clear where everyone’s bets are placed -on Hillary-, so much so that there’s not much of a rally left if she wins. A Trump win could well see some panic, downward pressure for the dollar and stocks, upward pressure for gold, but there’s no telling how long that would last.

It’s the medium to long term future that’s far more interesting. Because who wins makes no difference for the reality of the US economy. It’s been abysmal for years, and there are no plans available for turning that around. Government debt – across the board- and budget deficits don’t help, but they’re not the biggest deal; the US controls its own currency.

It’s private debt, consumer debt, that will offer the winner his or her poisoned chalice. With 94 million Americans not counted as part of the workforce, and untold million others in jobs that pay hardly or no living wage, with so many millions of jobs that no longer pay sufficient or even any benefits, consumer spending has nowhere to go but down.

In an economy where that spending is good for 70% of GDP -perhaps a bit less by now, a bad enough sign-, taking spending power away from people is deadly. The only way people have been able to either keep up appearances or even just make ends meet is going into debt.

 

 

This graph from Wolf Richter shouldn’t really need any explanation, but people have been so numbed by endless repetitions of sunny skewed data that it does. Sure, mortgage debt no longer looks as bad, thanks to foreclosures, jingle mail etc. So Wolf depicts debt without mortgages.

In just 9 years, from let’s say Bear Stearns to roughly this summer, consumer debt in America has gone up more than 50% ex-mortgages. And it’s not as if it was low in 2007, quite the contrary. The graph shows us what the American economy has survived on. It’s as plain vanilla as that. It’s the only graph you need, all the rest is just decoration. And it’s every inch as scary as it looks.

There was a time when America worked for its money, for its homes, for its cars, its healthcare, for the education of its children. There was a time when America produced and sold enough to be able to afford all that. Those days are long gone. Today, the prospect is one of borrowing more money to be able to pay back what you borrowed yesterday.

If and when interest rates start to rise, either in and of themselves or because the Fed has an epiphany, all that debt will get much harder, and much more expensive, to repay. Increasingly, Americans will unceremoniously and rapidly start to fall off the back end of the truck, and one by one lower consumer spending even more.

There’s nothing a new president can do about this. There is a slight difference, granted, in that Hillary largely thinks she can let things continue as they have -but look at that graph, they cannot continue!-, while Donald Trump wants to tear up international trade deals and bring back jobs to America.

Trump’s idea look a tad wiser, but so much manufacturing infrastructure has been obliterated that there’s no telling how fast it can be rebuilt. It’ll take years, for sure. Moreover, America cannot produce most items as cheap as many other countries can, so already squeezed consumers will get squeezed even more.

It’ll have to be back all the way to Henry Ford, paying people more so they can afford what they produce. But, again, look at that graph. If Americans didn’t have that debt burden, and again that’s ex-mortgages, the ‘Ford model’ might have been more feasible. It is not now.

Either of the candidates would have had to base their campaigns on a story of ‘we need to take a few steps back in order to do better later’, and that’s still a politically deadly message in today’s realm of eternal growth, fictional as it may be. People will vote for the better promise, not for the more realistic one. After all, how can they tell? It’s not as if the media will enlighten them.

There’s only one set of possible circumstances under which people will even just accept the ‘few steps back’ idea, and that’s wartime. Which is exactly what Hillary seems to be going for, judging from her neverending anti-Russia, anti-Putin and anti-Assad ‘utterances’ that look very hard to step back from. Maybe she understands America’s economic predicament better than I think?!

I like Wikipedia’s definition of a Pyrrhic victory, couldn’t hardly have put it better myself: “A Pyrrhic victory is a victory that inflicts such a devastating toll on the victor that it is tantamount to defeat. Someone who wins a Pyrrhic victory has been victorious in some way. However, the heavy toll negates any sense of achievement or profit.”

That sounds about right. I just have the idea that Hillary would enjoy it a bit more, and more blindly, than the Donald would. But it wouldn’t make much difference regardless. Obama’s had the luck that he’s been able to hide the economic downfall on his watch behind a $10+ trillion increase in the Fed balance sheet and a multiple trillion, 50% increase in household debt.

The next president won’t have any such gift thrown into their laps. The new president will have to empty the poisoned chalice.

Imagine being -almost- 70 years old, well-off, and still wanting that job. What’s that make a body? In urgent need of a lifetime of therapy? Mariana Trench-deep unhappy?

And on top of that both candidates already know close to half the country hates their guts to begin with.

Remember, not even Socrates could beat the poisoned chalice.

 

 

Jul 222016
 
 July 22, 2016  Posted by at 5:02 pm Finance Tagged with: , , , , , , ,  


Dorothea Lange ‘OK Family bound for Kingfisher and Lubbock. We’ll be in California yet’ 1938

Basic income is a topic I’ve been thinking about for a while, and while I won’t get anywhere near a comprehensive overview -there are too many uncertainties and untested ideas-, I’m going to try to paint a first chapter in a work of progress. Or, a thought experiment, for me and others.

Of course I’ve read a lot of and about other people’s ideas on the topic, and I’m sure there are many more out there that I haven’t seen yet, but I’m afraid to say that about all of those I did read tend to fall into the same ‘trap’. That is, they project their ideas, which are widely varying, onto -or close to- the economy (economies) and society (societies) as they are today.

Their basic income examples and ideas and theories (as well as criticisms of them) are all built around a perception of the economy as it is, or better still as it once was. And that is probably a bad idea. Because the economy of the future will not be like it is today, or was yesterday, and neither will societies.

And that is not because of the role automation and/or robots will play, a topic that features prominently in many basic income writings; those things are but a minor distraction. What will change our world much more profoundly will be the inevitable demise of the economic system as we know it.

And it’s against that backdrop that the issue of basic income must be viewed. If only because it then becomes something entirely different.

 

 

I started thinking a while back that it would not be robots or inequality that would be the foundation of and driving force behind basic income, but the ruin of our pension systems. Of course one has to be careful with general statements on this, because there are so many different systems and approaches when it comes to pensions and other old-age ‘provisions’ and/or ‘benefits’.

What all have in common today, though, is that they’re woefully underfunded and sliding down further fast due to ultralow interest rates and other ‘policies’, as well as to ageing societies. It seems almost incredulous that until a few years ago most pensions funds were required by law to invest only in AAA-rated assets.

While they may not all suffer from the same afflictions, all these systems, from Social Security to private pension funds, do suffer from the same symptoms. Painting the picture with a broad stroke, it’s safe to say they’re all in essence Ponzi schemes.

While many of the ‘Social Security variety’ depend on the trust in a government to pay out something for which nothing -or very little- has been set aside, those of the variety in which money IS actually paid in are inflicted by the twin impairments of too little return on what is paid in to maintain the fund, and too few newcomers to pay for what ‘oldtimers’ never paid but do want to take out.

A third ‘impairment’ will occur when younger workers figure out they’re paying into something they will never see any benefits of, and refuse to fork over any longer.

Low interest rates and ageing populations are wreaking havoc on -especially- European and Japanese pensions even as we speak, and a brief look at future trendlines makes abundantly clear where things are going.

Pondering all that, it seems obvious that at some point a government with at least a bit of vision would come to the conclusion that a basic income to replace all the faltering old-age provisions schemes -and many others- might make a lot of sense. If only because, once you think about it, ‘free’ money only for older people does not make sense, neither politically nor economically.

 

 

But let’s take a step back; that last bit still doesn’t take sufficiently into account that our economies are about to undergo radical changes because they are collapsing. What I find interesting is that this collapse actually seems to play into the hands of a basic income. For several reasons, as a matter of fact.

I am convinced that a basic income in an economy that’s part of a centralized, even globalized, system, makes no sense. You can’t really have a basic income in a society that imports most of what it uses, but that still is the model of most of our societies. We import much of what’s essential, and export non-essential things.

That is a problem that will more or less solve itself, though we better pay attention and be prepared, or else. We may not know exactly when or how the economic collapse will occur, but that’s not the most important thing. What is, is that centralization can only happen in a growing economy. As soon as growth halts -or even reverses-, economies will of necessity decentralize. Unless perhaps they’re under a dictatorship, but even then.

Setting up a basic income system in a society that, for example, imports its clothes and furniture -and sometimes even food- from China, is a doomed proposition. The number one requirement for a successful basic income is that the money issued stays inside the society it’s being issued in. If not, it would merely speed up bankruptcy.

The money must be spent locally, on local products, as much as possible, because then it will be worth much more to the local economy. This will also go far towards fighting deflation, because the velocity of money will increase. To ensure that as much as possible is spent inside a community/society, the manufacturing base will need to be (re-)built.

Which must happen anyway as the global economy sinks, and the sooner, the better. The worldwide transport lines we know today will not exist for much longer, and it will take time to adapt one’s economy to that.

On the bright side, this decentralization, or relocalization, or ‘protectionism’ if you will, will (re-)create a lot of jobs. Not ones that will pay as much as what we see now, but that’s not necessarily such a bad thing. And besides, it’s not as if we have some kind of free choice. Reality will dictate the terms. We must produce our own essentials once again: food, clothing, housing, furniture etc.

Still on the bright side, the new jobs will make basic income much less costly for a society. Because you can top off what people make on top on whatever the basic income is, and you can do so at a level that everyone can agree to.

 

 

That’s my first take of basic income in a crisis, a crisis I see as set in stone. Which changes the whole issue of a basic income. Plenty people will see this as socialism or something in that vein, I see it as perhaps the only way to make sure you have a functioning society on the way down. With none of the alternatives looking particularly appealing.

When discussing the details of such a program, what would probably be good, if only for the sake of justice, is to combine it with Steve Keen’s notion of a Modern Debt Jubilee, in which debt gets cancelled but those with most debt are obliged to pay -part of it- down, while those who are debt-free get ‘rewarded’ for that status.

What I have always found difficult to envision is how a jubilee would work in modern days. The ones ‘of old’ would typically involve a local ruler and/or landlord to whom subjects owed debts of some sort, which the ruler could declare null and void while still being the ruler- and the richest man around.

Today debts are global, with much of them having been securitized and sold on to large -financial- institutions who may even be anonymous and have shareholders in dozens of different countries. How do you get them to agree to large-scale debt cancellation or reform? I’m not saying it can’t be done, but it’s not the same thing.

The hardest part of what I laid out above may well be to get people who feel they are owed benefits, pensions or otherwise, to accept that these will be incorporated into a new basic income system. Not many understand to what extent pensions systems are Ponzi’s, and even those who do to an extent may still refuse to give up their slice of the pie.

It should be fairly easy, though, to explain what their slice will look like once the systems collapse, or even simply once nobody pays in anymore. And because younger people have no reason to pay for something they know they will never see the benefits of, and moreover all this can be phased in/out over a certain period of time, it may well unfold faster and easier than one might think at first sight.

 

 

Lastly, some numbers. Greg Ip wrote for the Wall Street Journal last week: Revival of Universal Basic Income Proposal Ignores Needs of Labor Force. Obviously, in my example, i.e. in an economy that’s going down the drain, the term ‘needs of the labor force’ takes on a whole different role and meaning. In his piece, Ip says:

To send every American adult $10,000 a year would cost $2.4 trillion, or 13% of GDP.

And I think that is a misleading way of phrasing things. Because the money doesn’t disappear, so it doesn’t ‘cost’ that; and that’s not only true in my theoretical example. Most of the ‘basic income money’ would circulate inside the economy, and much comes back to the issuing state through various taxes. Crux is don’t let it leave the economy it’s issued in.

Mind you, I don’t see a basic income trial happen in the US, because it’s far too big a country. The EU is too large too. You’d need smaller units. And as I said, a shrinking economy would of necessity make units smaller. In Europe, these units already exist. In countries the size of Finland, Switzerland, Scotland, Wales, perhaps Greece, a basic income trial may well be viable.

That is, provided they shrug off the strangleholds that bind them to centralized systems. But that they will wind up doing regardless. What’s more important is that such a trial is meticulously planned, and not with some pie in the sky idea of where the world economy is headed.

Greg Ip suggests that a $10,000 basic income for all US adults is not realistic, because it would ‘cost’ 13% of GDP. But this graph from the World Economic Forum World Economic Forum on social expenditures as calculated by the OECD, puts things in a different light:

 

In 2014, US social expenditures were at about 20% of GDP, which is 50% more than Ip’s example. And that is the main point behind the basic income question, even if you don’t subscribe to the collapsing economy ‘thesis’: what would happen if you replace all -or almost all- social benefit schemes in a particular society with a basic income? How much money would you save, or how much extra would it cost?

Ip seems to contend that a basic income would be prohibitively expensive. But, even if the OECD numbers fail to include certain items, there’s a lot of leeway between the 13% of GDP a US basic income would cost, and the 20% of GDP America now pays in benefits. About $1.2 trillion in leeway. So the cost picture at the very least is not all that obvious.

By the way, it’s kind of funny that I’ve seen nobody address the perhaps most ironic thing: even if the state would save a lot of money moving to the much simpler basic income from a myriad of other programs, that would make a whole lot of civil servants unemployed all at once. Can’t help wondering why no-one brings that up.

But the US is not the best example, for various reasons. It’s countries that have the right size to hold a trial in, or at least what we can perceive as the right size. Finland, Belgium, Denmark all spend close to 30% of GDP on social expenditures. Portugal, Greece, Slovenia, Luxembourg are at 25%. If a basic income can be had for 13% of GDP, these countries stand to save a fortune…

Unfortunately, you can’t be in the EU and start a basic income trial. And that’s a shame. Because it’s going to be very hard to get this right, and it’ll take some serious time and effort. So much so that not starting today is a risk in itself.

But as long as people keep having faith in the economists, politicians, bankers and reporters who drill the ‘recovery is right around the corner’ meme into them 24/7, and any alternative to that meme just scares the heebees out of them, I’m afraid there’ll be no basic income trial. Yes, there are a few ideas, but they’re all based on the wrong -growth- assumptions, so they’re sure to fail.

Caveat: No, I haven’t gone through all different social benefits plans of all countries I’ve mentioned, so I don’t know what part of GDP each spends at present, or how much they could save or lose. Someone will have to write ‘the book’ on this.

For my thought experiment here I found it sufficient to go with the basic principles, and throw in a few numbers. And the most elementary difference between me and other voices is not there anyway: that is in my putting the basic income issue against the backdrop of economic collapse, and nobody else really doing that whom I’ve read.

Yes, the title is Marquez, of course, THE time of cholera

 

 

Jul 052016
 
 July 5, 2016  Posted by at 12:20 pm Finance Tagged with: , , , , , ,  


Dorothea Lange Miserable poverty. Elm Grove, Oklahoma County, OK 1936

We used to have this saying that if someone asks you to do a job good, fast and cheap, you’d say: pick two. You can have it good and cheap, but then it won’t be fast, etc. As our New Zealand correspondent Dr. Nelson Lebo III explains below, when it comes to our societies we face a similar issue with our climate, energy and the economy.

Not the exact same, but similar, just a bit more complicated. You can’t have your climate nice and ‘moderate’, your energy cheap and clean, and your economy humming along just fine all at the same time. You need to make choices. That’s easy to understand.

Where it gets harder is here: if you pick energy and economy as your focus, the climate suffers (for climate you can equally read ‘the planet’, or ‘the ecosystem’). Focus on climate and energy, and the economy plunges. So far so ‘good’.

But when you emphasize climate and economy, you get stuck. There is no way the two can be ‘saved’ with our present use of fossil fuels, and our highly complex economic systems cannot run on renewables (for one thing, the EROEI is not nearly good enough).

It therefore looks like focusing on climate and economy is a dead end. It’s either/or. Something will have to give, and moreover, many things already have. Better be ahead of the game if you don’t want to be surprised by these things. Be resilient.

But this is Nelson’s piece, not mine. The core of his argument is worth remembering:

Everything that is not resilient to high energy prices and extreme weather events will become economically unviable…

…and approach worthlessness. On the other hand,…

Investments of time, energy, and money in resilience will become more economically valuable…

Here’s Nelson:

 

 

Nelson Lebo: There appear to be increasing levels of anxiety among environmental activists around the world and in my own community in New Zealand. After all, temperature records are being set at a pace equal only to that of Stephen Curry and LeBron James in the NBA Finals. A recent Google news headline said it all: “May is the 8th consecutive month to break global temperature records.”

In other words, October of last year set a record for the highest recorded global monthly temperature, and then it was bettered by November, which was bettered by December, January, and on through May. The hot streak is like that of Lance Armstrong’s Tour De France dominance, but we all know how that turned out in the end.

Making history – like the Irish rugby side in South Africa recently – is usually a time to celebrate. Setting a world record would normally mean jubilation – not so when it comes to climate.

Responses to temperature records range from sorrow, despair, anger, and even fury. Anyone with children or grandchildren (and even the childless) who believes in peer review and an overwhelming scientific consensus has every right to feel these emotions. So why do I feel only resignation?

We are so far down the track at this point that we are damned if we do and damned if we don’t. Remember the warnings 30 years ago that we needed 30 years to make the transition to a low carbon economy or else there would be dire consequences? Well, in case you weren’t paying attention, it didn’t happen.

While these warnings were being issued by scientists much of the world doubled down – Trump-like – on Ford Rangers, Toyota Tacomas, and other sport utility vehicles. The same appears to be happening now, with the added element that we are experiencing the dire consequences as scientists issue even more warnings and drivers buy even more ‘light trucks’. Forget Paris, the writing was on the wall at Copenhagen.

 

The bottom line is that most people will (and currently do) experience climate change as a quality of life issue, and quality of life is related to a certain extent to disposable income. Acting or not acting proactively or reactively on climate change is expensive and gets more expensive every day.

If the international community ever takes collective action on climate change it will make individuals poorer because the cost of energy will rise significantly. If the international community fails to act, individuals will be made poorer because of the devastating effects of extreme weather events – like last year’s historic floods where I live as well as in northern England, etc – shown to be on the increase over the last 40 years in hundreds of peer-reviewed papers with verifiable data.

And here is the worst part: most economies around the world rely on some combination of moderate climate and cheap fossil fuels. For example, our local economy is heavily dependent on agriculture and tourism, making it exceptionally vulnerable to both acting AND not acting on climate change.

Drought hurts rural economies and extreme winds and rainfall can cost millions in crop damage as well as repairs to fencing, tracks and roads. As a result, both farmers and ratepayers have fewer dollars in their pockets to spend on new shoes, a night out, or a family trip. This is alongside living in a degraded environment post-disaster. The net result is a negative impact on quality of life: damned if we don’t.

On the other hand, tourism relies on inexpensive jet fuel and petrol to get the sightseers and thrill seekers to and around the world with enough dollars left over to slosh around local economies. Think about all of the service sector jobs that rely on tourism that in turn depend entirely on a continuous supply of cheap fuel. (This is not to mention peak oil and the lack of finance available to fund any long and expensive transition to an alternative energy world.) I’m told 70% of US jobs are in the service sector, most of which rely on inexpensive commuting and/or a highly mobile customer base.

Any significant approach to curbing carbon emissions in the short term will result in drastic increases to energy prices. The higher the cost of a trip from A to Z the less likely it is to be made. As a result, business owners and ratepayers at Z will have fewer dollars in their pockets to spend on new shoes, a night out, or a family vacation of their own. The net result is a negative impact on their quality of life: damned if we do.

 

I suppose it deserves repeating: most OECD economies and the quality of life they bring rely on both moderate climate and cheap fossil fuels, but these are mutually exclusive. Furthermore, regardless of emissions decisions made by the international community, we are already on track for decades of temperature records and extreme weather events that will cost billions if not trillions of dollars.

The response in many parts of the world has been to protest. That’s cool, but you can’t protest a drought – the drought does not care. You can’t protest a flood – the flood does not care. And even if the protests are successful at influencing government policies – which I hope long-term they are – we are still on track for decades of climatic volatility and the massive price tags for clean up and repair.

Go ahead and protest, people, but you better get your house in order at the same time, and that means build resilience in every way, shape and form.

Resilience is the name of the game, and I was impressed with Kyrie Irving’s post NBA game seven remarks that the Cleveland Cavaliers demonstrated great resilience as a team.

As I wrote here at TAE over a year ago, Resilience Is The New Black. If you don’t get it you’re not paying attention.

This article received a wide range of responses from those with incomplete understandings of the situation as well as those in denial – both positions dangerous for their owners as well as friends and neighbours.

The double bind we find ourselves in by failing to address the issue three decades ago is a challenge to put it mildly. Smart communities recognize challenges and respond accordingly. The best response is to develop resilience in the following areas: ecological, equity, energy and economic.

The first two of these I call the “Pope Index” because Francis has identified climate change and wealth inequality as the greatest challenges facing humanity. Applying the Pope Index to decision making is easy – simply ask yourself if decisions made in your community aggravate climate change and wealth inequality or alleviate them.

For the next two – energy and economics – I take more of a Last Hours of Ancient Sunlight (credit, Thom Hartmann) perspective that I think is embraced by many practicing permaculturists. Ancient sunlight (fossil fuels) is on its way out and if we do not use some to build resilient infrastructure on our properties and in our communities it will all be burned by NASCAR, which in my opinion would be a shame.

As time passes, everything that is not resilient to high energy prices and extreme weather events will become economically unviable and approach worthlessness.

On the other hand, investments of time, energy, and money in resilience will become more economically valuable as the years pass.

Additionally, the knowledge, skills and experience gained while developing resilience are the ultimate in ‘job security’ for an increasingly volatile future.

If you know it and can do it and can teach it you’ll be sweet. If not, get onto it before it’s too late.

 

 

Dr. Nelson Lebo is a serial permaculture property developer and consultant. He likes underdogs but not drug cheats. Congratulations Cleveland and Ireland.

 

 

Jun 192016
 
 June 19, 2016  Posted by at 2:39 pm Finance Tagged with: , , , , , , , ,  


DPC White Star liner S.S. Olympic, sister ship of Titanic, NY 1911

The reason the Brexit debate has gotten so out of hand is nobody understands what it’s about.

The Brexit campaigns have started anew in the UK, and from what I’ve seen here from left field barely a thing has changed since the murder of MP Jo Cox. Neither side has any qualms about using her death to make their respective points. The main, and perhaps only real, point is that nobody understands what the vote is about. Jo Cox, bless her soul, didn’t either.

This lack of understanding is also, at the same time, the reason why the debate has gotten so out of hand. Nobody seems to understand it’s not about Cameron or Nigel Farage, or Michael Gove vs Boris Johnson, it’s about voting for or against the EU, for or against Juncker and Tusk and five other unelected presidents having a say in one’s life.

And that’s not all either. It’s about voting to leave, or remain in, a Union that is already dead and preserved only in a zombie state. Brexit is just one vote and many more will inevitably follow. Brexit is not the first, Grexit had that ‘honor’ last year. Later this month, elections in Italy and Spain have the potential to turn into preliminary Italix and Spexit votes. And then there will be more.

The reason why these things are taking place, and will be, going forward, is that the economies of all these countries are fast deteriorating. The sole reason why people have accepted the rule of Brussels coming from far away over their daily lives, is the promise that it would make those lives better and more comfortable.

That promise has been shattered. The EU has made things worse for most Europeans, not improved them. And when seen in that light, why should people agree to continue to be told what to do by those who’ve made them poorer? There’s no democratic model in which that remotely makes sense. There are only undemocratic models left.

Britain’s Brexit referendum has run head first into global developments, and there is no sign that any voice in the discussion recognizes this. They all think it’s about something else. And of course Cameron’s policies have devastated the country, and of course the even more right wing Leave campaigners would make that worse. But that’s not what this is about.

 

What Cameron missed when he called the referendum is not that some of his friends could turn on him and go Leave, what he missed is that so many Brits from both the left and the right would turn on him. He never expected that to happen. He always figured his manipulated rosy pink economic numbers would outweigh people’s actual daily lives.

This is a global phenomenon, it has little to do with Cameron himself, other than his neoliberal budget cuts are often even more extreme than those of many of his pan-European and indeed American and global peers. It has a lot more to do with the neoliberalism embedded in Brussels, which has installed technocratic governments in many countries, especially in southern Europe, all with disastrous consequences for the populations.

It’s an exact mirror image of what is happening in the US. The jobs numbers the government and media feed Americans look good once filtered through a hundred layers of manipulation, but people look at what job they themselves have, and what it pays them, and they look at their families, friends and neighbors, and then decide this just ain’t working out or adding up.

The Brexit vote is, in a nutshell, Britain’s last chance to hit the lifeboats and jump the Titanic before it hits the iceberg. This is not even because of the dictatorial character Brussels has taken on, which is starting to display cartoonish properties, it’s because the global economy has hit the debt iceberg well before the EU has.

Voting Remain in next week’s referendum comes down to “Let’s stay onboard so we can help rearrange the deckchairs. And while we’re at it, pick some nice tunes for the orchestra to play on the way down as we sink.”

 

If there’s one outstanding advantage to the Brexit debate, it must be that it has opened up British society to reveal all its festering boils, pimples, pustules, ulcers and neoplasms that had before remained veiled by either stiff upper lips or outright dumb-ass ignorance. Not that the ‘discussion’ has done anything to lift the dumb-assery, mind you; the intelligence level of the Brits has been exposed as yet another hidden sore.

Nothing typically British there either. Neither the people nor the politicians nor the media in the country show any sign of comprehending what is happening to them. Nobody is capable of taking a step back and seeing a bigger picture. Jo Cox’s death has done nothing to fix that issue. Indeed, if there’s one thing Britain has been, and still is, showing the world it’s that it’s incapable of solving its problems.

But that incompetence is not going to be alleviated by handing the reins to Cameron or Johnson, or Corbyn, or indeed Juncker and Tusk. The only remedy is a cold hard look at what’s really going on in Britain itself, a look at its place in a rapidly imploding global economic system, and a look at what being a part of the EU actually means.

To gauge that last bit, all one has to do is to look at Greece, at how the EU has forced the demise of the Greek economy, of its once magnificent health-care system, and of countless other segments of a society still mired today in inexorable decline. A look at the treatment of refugees holds a lesson or two as well.

The summarized lesson from all this is that Brussels will happily throw you under a bus if it feels that would further its ambitions. Of which the EU has many.

The treatment of Greece and the refugees has redefined the term ‘Union’, and everyone should take note.

 

In America, the Democratic and Republican parties have all but internally combusted and destroyed themselves. In Britain, Labo(u)r did that years ago through Tony Blair, and the Tories are doing it today by infighting over Brexit. None of these things are incidents or stand-alone events.

They are part of a much larger pattern, as evidenced by the popularity numbers of people like French president Hollande (8%?!). All but a few incumbent parties in the west are evaporating. And all for the same reason: the demise of the existing economic models and systems that they have based their policies and popularity on.

An economy in decline means the end of centralization and the end of existing political power structures. This is inevitable. Because both can exist only by the grace of ever growing economies. It’s what our economies are based on. It’s what our entire world view is based on. Sometime in the future historians will have a hard time understanding this, but for now it’s all we have, because it’s all we’re willing to consider: growth to infinity and beyond.

Which was, or seemed to be, kind of alright as long as there indeed was growth. But there no longer is any growth. And it will not return for a long time, arguably not in our lifetimes. Which makes it a problem that we haven’t prepared for the end of growth. Which is not terrible smart given that making a point for growth having stopped decades ago looks quite solid.

 

People in Britain try desperately to link Jo Cox’s murder to some sort of larger movement or entity, even if for all they know, for all they can know, the killer is just another warped individual who didn’t take his meds for a long enough period to make him go fully off kilter.

Yeah, he ordered some right wing magazines and books. But that doesn’t mean there’s a conspiracy behind the murder. Nor does it make this fascist and/or right-wing terrorism. Those claims are made solely in an effort to connect the tragedy to the Brexit vote. And that effort all by itself is a huge blemish on Jo Cox’s life, her death and her legacy.

To truly honor her would be to make sure you understand, and help others understand, what she herself did not.

Dec 142015
 
 December 14, 2015  Posted by at 3:43 pm Finance Tagged with: , , , , , , ,  


Dorothea Lange White Angel Breadline San Francisco 1933

Many people are cheering now that yesterday Marine Le Pen and her Front National (FN) party didn’t get to take over government in any regions in the France regional elections. They should think again. FN did get a lot more votes than the last time around, and, though she will be a little disappointed after last weekend’s results, it’s exactly as Le Pen herself said: “Nothing can stop us”.

And instead of bemoaning this, or even not believing it, it might be much better to try and understand why she’s right. And that has little to do with any comparisons to Donald Trump. Or perhaps it does, in that in the same way that Trump profits from -people’s perception of- the systemic failures of Washington, Le Pen is being helped into the saddle by Brussels.

The only -remaining- politicians in Europe who are critical of the EU are on the -extreme- right wing. The entire spectrum of politics other than them don’t even question Brussels anymore. Which is at least a little strange, because support for the EU on the street is not nearly as strong as among politicians, as referendum after referendum keeps on showing.

Some of which have rejected (more power to) the EU outright, like the one in Denmark last week, while others do it indirectly, by voting for anti-EU parties -see France this and last weekend-. There’s a long list of these votes going back through the years, with for instance both France and Holland saying No to the EU constitution in 2005, which led to many countries to postpone their own votes on the topic.

Brussels had an answer, though: by 2007, the Constitution proposal was converted into a Treaty (of Lisbon), which said basically the same but in a different order, and only through amendments to existing treaties. It was still rejected again in an Irish referendum, but in a second vote in 2009 accepted.

Importantly, the switch from Constitution to Treaty meant unanimity among EU nations was no longer needed; a majority was good enough. And so the whole thing was pushed through regardless of what people thought -and voted .

The overall picture is clear: Europeans in general are fine with the EU, but when it tries to grab more sovereign powers, they say NO, time and again. Only to be overruled by their own domestic politicians as well as Brussels. Their worries, frictions and arguments have only one way to go: the far right. All other political currents are united in unwavering support for the EU, basically no matter what.

But people see what’s happening in Greece, and with refugees, they see the way the Union treats the Russia and Ukraine issue, they see the new-fangled unholy plans with the EU border force, and they don’t want Brussels to tread on their respective nation’s sovereignty anymore than it already has.

They find no resonance for their worries at home, however, other than with people like Le Pen, Nigel Farage and similar ‘political outcasts’. And therefore that’s where they will turn. All Le Pen has to do is wait for the economy to get worse, and it will, and she can reap what the EU has sown.

As soon as Brussels threatens to turn into an authoritarian body, something it has already very evidently done, people will resist it.

The European Union could have been a very useful and appreciated organization, with many obvious advantages for the people of Europe. But as soon as it oversteps its boundaries, it is destined to self-implode. This process and outcome has become inevitable, because the Union has de facto appointed itself the arbiter of these boundaries.

The unelected high lords of Brussels have become too greedy, and too unaccountable, and they will end up achieving the exact opposite of what they claim the EU stands for: they will lead the continent into conflict, armed and otherwise.

The new border force concept is the perfect example for what is going wrong in Europe. A group of the largest, and therefore most powerful EU nations, have agreed on a rainy Monday afternoon that they’re going to set up some sort of military police force that will ‘protect’ the borders of member nations even if these nations don’t ask for such protection and/or outright resist it.

This is obviously directed mostly at Greece for now, and the EU thinks it can do with Greece as it pleases. But ask any German, French or British citizen if they want entrance to their countries controlled and decided by a para-military bunch of foreigners, and they’ll think you’ve lost it. But that’s the idea behind the border force: take away nations’ sovereignty. Start with the smaller and weaker and work your way up.

That this has some interesting legal implications, as I wrote recently in Greece Is A Nation Under Occupation, that few seem to even contemplate, will add to the entertainment.

There are 28 separate constitutions in the EU. Under which of these is it legal for a government to sign away control of its own borders? In how many of these countries will this be appealed at their own version of the Supreme Court? And how many of these courts will say: sure, sovereignty is way overrated anyway!?

The EU could have been a useful union. Not all those border checks, for one thing, not all those forms to fill out all the time. But with the advent of the euro, things got out of hand. You can have a functioning union between very different entities. But only as long as those differences are recognized and respected.

The euro is an idea that seeks to deny the differences between the people(s) of Europe, it seeks to claim that Germany IS Greece. To that end, it must then take away all nations’ sovereignty. The euro cannot exist without that. To function properly as a currency, it needs a banking union, a fiscal union. And then take it from there.

These are all things that nobody properly thought or talked about before it was introduced. Perhaps because everyone knew that these things would be unacceptable to the European people. And now the euro’s here, and all these things will have to be pushed through anyway. Brussels thinks it has plenty experience pushing things through despite the will of the people, so this one will work too.

But all it takes is for someone to point this out in clear language to people. Unfortunately, the only ones who do today connect this with resistance to refugees, to open societies, to all sorts of things that have nothing to do with why the euro is a failure.

Meanwhile, as I’ve written many times before, the EU is this body that self-selects for sociopaths in its hierarchy, being its undemocratic self. What few people recognize is that it also self-selects for the likes of Marine Le Pen.

And we haven’t seen anything yet. As I said before, all Le Pen has to do is for the economy to pine for the fjords. And looking at the current commodities slaughter, that might happen before anyone can look it up in the dictionary.

And Angela Merkel, after having pushed aside the Dublin accord on refugees and opened German doors, now wants to close them again. As if that works. The EU now wants to hand Greece tens of millions of euros just to keep refugees in the country.

But what happens when the recent projection of another 3 million arriving in Europe in 2016 comes to fruition? What happens when the refugees don’t listen to the Berlin/Brussels dictates? One can only imagine the chaos. The EU has offered Turkey €3+ billion to keep them there, but president Erdogan doesn’t look like the kind of guy you can make a deal with and expect him to live up to it.

Europe seriously risks being flooded with people, while its economy shrinks like a cotton jersey in an autumn rain storm. And who’s going to be looking at the wannabe dictators in Brussels for help then? Nations will end up deciding to decide for themselves. And because all politicians but the far right have unequivocally supported the Union for many years, guess who’ll be coming to dinner?

Today the victims are the Greeks and the refugees. And all those whose governments cut their benefits to ‘balance their budgets’. Tomorrow, those budgets must be balanced all over Europe, in this line of thinking.

As we witness the commodities plunge, and the stock market crash that must of necessity follow it, it becomes hard to see how countries like Italy, Spain, even France, could escape resembling Greece a whole lot more in 2016. And then Europe will be right back where it left off 70 years ago.

May 242015
 
 May 24, 2015  Posted by at 11:12 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing F.W. Grand store, Washington, DC 1925

Mario Draghi made another huge faux pas Thursday, but it looks like the entire world press has become immune to them, because it happens all the time, because they don’t realize what it means, and because they have a message if not a mission to sell. But still, none of these things makes it alright. Nor does Draghi’s denying it was a faux pas to begin with.

And while that’s very worrisome, ‘the public’ appear to be as numbed and dumbed down to this as the media themselves are -largely due to ’cause and effect’, no doubt-. We saw an account of a North Korean defector yesterday lamenting that her country doesn’t have a functioning press, and we thought: get in line.

It’s one thing for the Bank of England to research the effects of a Brexit. It’s even inevitable that a central bank should do this, but both the process and the outcome would always have to remain under wraps. Why it was ‘accidentally’ emailed to the Guardian is hard to gauge, but it’s not a big news event that such a study takes place. The contents may yet turn out to be, but that doesn’t look all that likely.

The reason the study should remain secret is, of course, that a Brexit is a political decision, and a country’s central bank can not be party to such decisions.

It’s therefore quite another thing for ECB head Mario Draghi to speak in public about reforms inside the eurozone. Draghi can perhaps vent his opinion behind closed doors, for instance in talks with politicians in European nations, but any and all eurozone reforms remain exclusively political decisions, even if they are economic reforms, and therefore Draghi must stay away from the topic, certainly in public. Far away.

There has to be a very clear line between central banks and governments. The latter should never be able to influence the former, because it would risk making economic policy serve only short term interests (until the next election). Likewise the former should stay out of the latter’s decisions, because that would tend to make political processes skewed disproportionally towards finance and the economy, at the potential cost of other interests in a society.

This may sound idealistic and out of sync with the present day reality, but if it does, that does not bode well. It’s dangerous to play fast and loose with the founding principles of individual countries, and perhaps even more with those of unions of sovereign nations.

Obviously, in the same vein it’s fully out of line for German FinMin Schäuble to express his opinion on whether or not Greece should hold a referendum on euro membership, or any referendum for that matter. Ye olde Wolfgang is tasked with Germany’s financial politics, not Greece’s, and being a minister for one of 28 EU members doesn’t give him the liberty to express such opinions. Because all EU nations are sovereign nations, and no foreign politicians have any say in other nations’ domestic politics.

It really is that simple, no matter how much of this brinkmanship has already passed under the bridge. Even Angela Merkel, though she’s Germany’s political leader, must refrain from comments on internal Greek political affairs. She must also, if members of her cabinet make comments like Schäuble’s, tell them to never do that again, or else. It’s simply the way the EU was constructed. There is no grey area there.

The way the eurozone is treating Greece has already shown that it’s highly improbable the union can and will last forever. Too many -sovereign- boundaries have been crossed. Draghi’s and Schäuble’s comments will speed up the process of disintegration. They will achieve the exact opposite of what they try to accomplish. The European Union will show itself to be a union of fairweather friends. In Greece, this is already being revealed.

The eurozone, or European monetary union, has now had as many years of economic turmoil as it’s had years of prosperity. And it’ll be all downhill from here on in, precisely because certain people think they can afford to meddle in the affairs of sovereign nations. The euro was launched on January 2002, and was in trouble as soon as the US was, even if this was not acknowledged right away. Since 2008, Europe has swung from crisis to crisis, and there’s no end in sight.

At the central bankers’ undoubtedly ultra luxurious love fest in Sintra, Portugal, where all protagonists largely agree with one another, Draghi on Friday held a speech. And right from the start, he started pushing reforms, and showing why he really shouldn’t. Because what he suggests is not politically -or economically- neutral, it’s driven by ideology.

He can’t claim that it’s all just economics. When you talk about opening markets, facilitating reallocation etc., you’re expressing a political opinion about how a society can and should be structured, not merely an economy.

Structural Reforms, Inflation And Monetary Policy (Mario Draghi)

Our strong focus on structural reforms is not because they have been ignored in recent years. On the contrary, a great deal has been achieved and we have praised progress where it has taken place, including here in Portugal. Rather, if we talk often about structural reforms it is because we know that our ability to bring about a lasting return of stability and prosperity does not rely only on cyclical policies – including monetary policy – but also on structural policies. The two are heavily interdependent.

So what I would like to do today in opening our annual discussions in Sintra is, first, to explain what we mean by structural reforms and why the central bank has a pressing and legitimate interest in their implementation. And second, to underline why being in the early phases of a cyclical recovery is not a reason to postpone structural reforms; it is in fact an opportunity to accelerate them.

Structural reforms are, in my view, best defined as policies that permanently and positively alter the supply-side of the economy. This means that they have two key effects. First, they lift the path of potential output, either by raising the inputs to production – the supply and quality of labour and the amount of capital per worker – or by ensuring that those inputs are used more efficiently, i.e. by raising total factor productivity (TFP).

And second, they make economies more resilient to economic shocks by facilitating price and wage flexibility and the swift reallocation of resources within and across sectors. These two effects are complementary. An economy that rebounds faster after a shock is an economy that grows more over time, as it suffers from lower hysteresis effects. And the same structural reforms will often increase both short-term flexibility and long-term growth.

And earlier in the -long- speech he said: “Our strong focus on structural reforms is not because they have been ignored in recent years. On the contrary, a great deal has been achieved and we have praised progress where it has taken place, including here in Portugal.

So Draghi states that reforms have already been successful. Wherever things seem to go right, he will claim that’s due to ‘his’ reforms. Wherever they don’t, that’s due to not enough reforms. His is a goalseeked view of the world.

He claims that the structural reforms he advocates will lead to more resilience and growth. But since these reforms are for the most part a simple rehash of longer running centralization efforts, we need only look at the latter’s effects on society to gauge the potential consequences of what Draghi suggests. And what we then find is that the entire package has led to growth almost exclusively for large corporations and financial institutions. And even that growth is now elusive.

Neither reforms nor stimulus have done much, if anything, to alleviate the misery in Greece or Spain or Italy, and Portugal is not doing much better, as the rise of the Socialist Party makes clear. The reforms that Draghi touts for Lisbon consist mainly of cuts to wages and pensions. How that is progress, or how it has made the Portuguese economy ‘more resilient’, is anybody’s guess.

Resilience cannot mean that a system makes it easier to force you to leave your home to find work, but that is exactly what Draghi advocates. Instead, resilience must mean that it is easier for you to find properly rewarded work right where you are, preferably producing your own society’s basic necessities. That is what would make your society more capable of withstanding economic shocks.

Still, it’s the direct opposite of what Draghi has in mind. Draghi states that [structural reforms] “.. make economies more resilient to economic shocks by facilitating price and wage flexibility and the swift reallocation of resources within and across sectors.”

That obviously and simply means that, if it pleases the economic elites who own a society’s assets, your wages can more easily be lowered, prices for basic necessities can be raised, and you yourself can be ‘swiftly reallocated’ far from where you live, and into industries you may not want to work in that don’t do anything to lift your society.

Whether such kinds of changes to your society’s framework are desirable is manifestly a political theme, and an ideological one. They may make it easier for corporations to raise their bottom line, but they come at a substantial cost for everyone else.

Draghi tries to push a neoliberal agenda even further, and that’s a decidedly political agenda, not an economic one.

There was a panel discussion on Saturday in which Draghi defended his forays into politics, and he was called on them:

Draghi and Fischer Reject Claim Central Banks Are Too Politicised

The ECB president on Saturday said his calls were appropriate in a monetary union where growth prospects had been badly damaged by governments’ resistance to economic reforms. Mr Draghi said it was the central bank’s responsibility to comment if governments’ inaction on structural reforms was creating divergence in growth and unemployment within the eurozone, which undermined the existence of the currency area. “In a monetary union you can’t afford to have large and increasing structural divergences,” the ECB president said. “They tend to become explosive.”

He even claims it’s his responsibility to make political remarks….

Mr Draghi’s defence of the central bank came after Paul De Grauwe, an academic at the London School of Economics, challenged his calls for structural reforms earlier in the week. Mr De Grauwe said central banks’ push for governments to take steps that removed people’s job protection would expose monetary policy makers to criticism over their independence to set interest rates.

The ECB president [..] said central banks had been wrong to keep quiet on the deregulation of the financial sector. “We all wish central bankers had spoken out more when regulation was dismantled before the crisis,” Mr Draghi said. A lack of structural reform was having much more of an impact on poor European growth than in the US, he added.

De Grauwe is half right in his criticism, but only half. It’s not just about the independence to set interest rates, it’s about independence, period. A central bank cannot promote a political ideology disguised as economic measures. It’s bad enough if political parties do this, or corporations, but for central banks it’s an absolute no-go area.

Pressure towards a closer economic and monetary union in Europe is doomed to fail because it cannot be done without a closer political union at the same time. They’re all the same thing. They’re all about giving up sovereignty, about giving away the power to decide about your own country, society, economy, your own life. And Greeks don’t want the same things as Germans, nor do Italians want to become Dutch.

Because of Greece, many EU nations are now increasingly waking up to what a ‘close monetary union’ would mean, namely that Germany would be increasingly calling the shots all over Europe. No matter how many technocrats Brussels manages to sneak into member countries, there’s no way all of them would agree, and it would have to be a unanimous decision.

Draghi’s remarks therefore precipitate the disintegration of Europe, and it would be good if more people would recognize and acknowledge that. Europe are a bunch of fairweather friends, and if everyone is not very careful, they’re not going to part ways in a peaceful manner. The danger that this would lead to the exact opposite of what the EU was meant to achieve, is clear and present.

Mar 252015
 
 March 25, 2015  Posted by at 10:41 pm Finance Tagged with: , , , , , ,  


Wyland Stanley Golden Gate Bridge under construction 1935

This is another essay from friend and regular contributor of The Automatic Earth, Euan Mearns at Energy Matters.

One comment on my part: Euan says ‘This has lead to speculation that weak global demand, stemming from masked economic woes, may also be playing a key role.‘ I don’t think the use of the term ‘speculation’ is appropriate here, because it seems overly obvious that China’s economic slowdown has played a major role in the oil price crash (and continues to do so). Even if there’s no ‘scientific’ proof, and even if the main media narrative remains OPEC overproduction and the inane meme of the cartel’s refusal to cut production, it certainly goes way beyond mere speculation.

Euan:

Two of the factors in the oil price crash are well constrained: 1) oversupply of expensive light tight oil (LTO) in North America and 2) the decision of OPEC to not cut production. The third possible factor of weak global demand is not so easy to constrain but the current oil price crash bears many of the same hallmarks as the 2008 finance crash. This has lead to speculation that weak global demand, stemming from masked economic woes, may also be playing a key role.

In response to this, commenter Javier sent me a collection of 10 charts that he had collected from various internet sources together with his commentary that forms the basis of this joint-post. These charts tell a clear story of a major economic slowdown in China. This most certainly will be implicated in the ongoing oil price weakness. The $10,000 question is will China make a cyclical rebound like it has done in the past?

Figure 1 GDP growth. YoY = year on year % change. Note many charts are not zero scaled. China’s economy is still growing at 7% per year but has slowed down dramatically from 12% 5 years ago. Such change has happened before, notably between 1994 and 1998 linked to the Asian currency crisis. The oil price hit $10 per barrel in 1998. And in 2007 to 2009 an even more sharp fall related to the financial crash was also accompanied by a crash in the oil price.

Javier points out that in a country with rapid population growth a higher GDP growth rate is required than in a country with stable or declining population and he suggests that 7% is in reality approaching recessionary levels.

Figure 2 Decline in the growth rate of industrial production mirrors the decline in the growth rate of GDP (Figure1).

Figure 3 Fixed Asset Investment is a technical measure of investment in hard assets, infrastructure, property and plant and machinery. The graph tells the story of a country growing at phenomenal and increasing rates of growth up to 2005, that is the definition of exponential growth. From 2005 to 2009 the growth rate was flat, i.e. the growth was linear. From 2010 China is investing in fixed assets at decreasing rates of growth.

The change in 2005 is coincident with a change in growth and oil consumption in many OECD countries and therefore indicates that a global source of economic distress took place at about that date. China is changing the way it grows as it is not possible to grow exponentially forever.

Figure 4 Retail sales is a measure of national consumer expenditure. 2008 was the year of the Beijing Olympic Games, so we can pretty much discount the strong peak that year and see in this graph a strong growth in consumer expending until 2010. Since then retail sales have being growing at a slower rate, and current rate of growth is the slowest in ten years.

Retail sales growth will be driven by two factors. 1) the number of individuals economically active which in China grew at a phenomenal rate with the great migration to the cities and 2) the prosperity of those economically active.

Figure 5 Unlike in the previous graphs, China home prices have recently gone into an actual negative rate of change, which means that home prices are actually decreasing in China. If unchecked this could become a serious problem for China since real estate represents about 75% of household assets. So home prices are important for how Chinese perceive their own wealth. Falling house prices also lead to the risk of negative equity where the asset value falls below the amount of debt secured against the asset.

Figure 6 Rail freight is now falling at 16% per annum having gone into negative territory in mid 2014. In the case of China this is a measure mainly of national trade. This mirrors the picture of falling international trade as indicated by the sharp fall in the Baltic Dry Shipping Index.

Figure 7 Consumer Price Index (CPI) measures the average change over time in the prices paid by consumers on a representative basket of goods and services, while Producer Price Index (PPI) measures the average change over time in the selling prices received by domestic producers for their output. PPI shows an abrupt worsening for producers in 2011, since then the timid recovery ended badly in mid 2014 and PPI is now at levels found during recession. CPI shows that China is also flirting with deflation, which is bad news for banks and all individuals and organisations that have debt.

Figure 8 This graph shows that as export growth has stalled and imports are actually declining since 2013 and specially since mid 2014. This is one of the main causes of the commodity price crash that includes oil. China is buying less raw materials which is bad news for commodity producers that depend on China, like Australia. Note exports are still well in excess of imports and China still runs a huge balance of trade surplus.

Figure 9 Growth in oil consumption in China underpinned the bull run in the oil price. This growth in consumption stalled in 2012. The reasons for this should be clear from the preceding charts.

Figure 10 The phenomenal growth in China has been fuelled in part by an equally phenomenal growth of debt. The chart shows private sector debt has gone from much lower than OECD countries to much higher in just two decades. Debt is a fantastic growth hormone, but it is subject to a very strong diminishing returns curve. When there is too much in the system, it becomes a growth inhibitor.

Summary

A wide range of economic measures shows that China is undergoing a period of rapid economic slow down and is flirting with recession. China has grown to become the world’s second largest economy and strong Chinese growth has underpinned global growth for many years. Without it, the world faces the risk of another global recession. The slowing of growth in China means a softening of demand for natural resources, including oil and softening of demand for consumer products made in Europe and the USA.

Low oil prices may help stimulate growth in China and without this stimulus the global economy may already have been in recession.

Many of the charts are simply thermometers of the Chinese economy. Three of the measures, however, give rise to more concern about China’s ability to climb out of the malaise as it has done before. Falling property values, risk of deflation and debt saturation. Like many of the world’s leading economies, China, appears to have driven into the same economic cul-de-sac.

Sources of charts

Zerohedge
Dr. Ed’s Blog
Snake oil trading blog

Who is Javier?

Javier holds a PhD in Biochemistry and Molecular Biology and has been a scientist for 30 years in molecular genetics and neurobiology. He wrote a blog on macroeconomy and investments from a cyclic point of view for over two years and currently writes a blog in Spanish about the economic crisis, energy crisis and climate change under the pseudonym Knownuthing.

Nov 272014
 
 November 27, 2014  Posted by at 6:34 pm Finance Tagged with: , , , , , ,  


Jack Delano Cafe at truck drivers’ service station on U.S. 1, Washington DC Jun 1940

We should be glad the price of oil has fallen the way it has (losing another 6% today as I write this). Not because it makes the gas in our cars a bit cheaper, that’s nothing compared to the other service the price slump provides. That is, it allows us to see how the economy is really doing, without the multilayered veil of propaganda, spin, fixed data and bailouts and handouts for the banking system.

It shows us the huge extent to which consumer spending is falling, how much poorer people have become as stock markets set records. It also shows us how desperate producing nations have become, who have seen a third of their often principal source of revenue fall away in a few months’ time. Nigeria was first in line to devalue its currency, others will follow suit.

OPEC today decided not to cut production, but whatever decision they would have come to, nothing would have made one iota of difference. The fact that prices only started falling again after the decision was made public shows you how senseless financial markets have become, dumbed down by easy money for which no working neurons are required.

OPEC has become a theater piece, and the real world out there is getting colder. Oil producing nations can’t afford to cut their output in some vague attempt, with very uncertain outcome, to raise prices. The only way to make up for their losses is to increase production when and where they can. And some can’t even do that.

Saudi Arabia increased production in 1986 to bring down prices. All it has to do today to achieve the same thing is to not cut production. But the Saudi’s have lost a lot of clout, along with OPEC, it’s not 1986 anymore. That is due to an extent to American shale oil, but the global financial crisis is a much more important factor.

We are only now truly even just beginning to see how hard that crisis has already hit the Chinese export miracle, and its demand for resources, a major reason behind the oil crash. The US this year imported less oil from OPEC members than it has in 30 years, while Americans drive far less miles per capita and shale has its debt-financed temporary jump. Now, all oil producers, not just shale drillers, turn into Red Queens, trying ever harder just to make up for losses.

The American shale industry, meanwhile, is a driverless truck, with brakes missing and fueled by on cheap speculative capital. The main question underlying US shale is no longer about what’s feasible to drill today, it’s about what can still be financed tomorrow. And the press are really only now waking up to the Ponzi character of the industry.

In a pretty solid piece last week, the Financial Times’ John Dizard concluded with:

Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.

While Reuters on November 10 (h/t Yves at NC) talked about giant equity fund KKR’s shale troubles:

KKR, which led the acquisition of oil and gas producer Samson for $7.2 billion in 2011 and has already sold almost half its acreage to cope with lower energy prices, plans to sell its North Dakota Bakken oil deposit worth less than $500 million as part of an ongoing downsizing plan.

Samson’s bonds are trading around 70 cents on the dollar, indicating that KKR and its partners’ equity in the company would probably be wiped out were the whole company to be sold now. Samson’s financial woes underscore how private equity’s love affair with North America’s shale revolution comes with risks. The stakes are especially high for KKR, which saw a $45 billion bet on natural gas prices go sour when Texas power utility Energy Future Holdings filed for bankruptcy this year.

And today, Tracy Alloway at FT mentions major banks and their energy-related losses:

Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850 million loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy. [..] if Barclays and Wells attempted to syndicate the $850m loan now, it could go for as little as 60 cents on the dollar.

That’s just one loan. At 60 cents on the dollar, a $340 million loss. Who knows how many similar, and bigger, loans are out there? Put together, these stories slowly seeping out of the juncture of energy and finance gives the good and willing listener an inkling of an idea of the losses being incurred throughout the global economy, and by the large financiers. There’s a bloodbath brewing in the shadows. Countries can see their revenues cut by a third and move on, perhaps with new leaders, but many companies can’t lose that much income and keep on going, certainly not when they’re heavily leveraged.

The Saudi’s refuse to cut output and say: let America cut. But American oil producers can’t cut even if they would want to, it would blow their debt laden enterprises out of the water, and out of existence. Besides, that energy independence thing plays a big role of course. But with prices continuing to fall, much of that industry will go belly up because credit gets withdrawn.

The amount of money lost in the ‘overinvestment cycle’ will be stupendous, and you don’t need to ask who’s going to end up paying. Pointing to past oil bubbles risks missing the point that the kind of leverage and cheap credit heaped upon shale oil and gas, as Dizard also says, is unprecedented. As Wolf Richter wrote earlier this year, the industry has bled over $100 billion in losses for three years running.

Not because they weren’t selling, but because the costs were – and are – so formidable. There’s more debt going into the ground then there’s oil coming out. Shale was a losing proposition even at $100. But that remained hidden behind the wagers backed by 0.5% loans that fed the land speculation it was based on from the start. WTI fell below $70 today. You can let your 3-year old do the math from there.

I wonder how many people will scratch their heads as they’re filling up their tanks this week and wonder how much of a mixed blessing that cheap gas is. They should. They should ask themselves how and why and how much the plummeting gas price is a reflection of the real state of the global economy, and what that says about their futures. Happy Turkey.

Apr 212014
 
 April 21, 2014  Posted by at 1:32 pm Finance Tagged with: , ,  


Detroit Publishing Co. Nightfall on the Ohio River at Cincinnati 1910

US President Barack Obama begins a three-day visit to Japan on Wednesday. As for what he’s going to be talking about, I can give you a hint or two. First of all, there are ongoing tensions between Japan and China, something both nations have a very long history of. And second, these tensions risk flaring up as they move towards intensifying domestic economic troubles, as their exports dwindle.

Prime Minister Shinzo Abe may himself be a nationalist, for what that’s worth, but there can be no doubt that his latest move in connection to the Yasukuni war shrine is also at least in part a piece of political opportunism. Abe knows he needs all the votes and support he can get, and badly.

Outrage Over Abe’s Gift To War Shrine

Japan’s Prime Minister Shinzo Abe’s gift to the controversial Yasukuni war shrine has sparked a Chinese charge that he was offering ‘a slap in the face’ to US President Barack Obama days ahead of his visit. The unapologetically nationalist Abe on Monday donated a sacred masakaki tree to coincide with the start of a three-day festival, a shrine official said. The sending of a gift has been seen as a sign that Abe does not intend to go to the shrine – as he did on December 26, sparking fury in Asia and earning him a diplomatic slap on the wrist from the United States, which said it was disappointed. Yasukuni Shrine honours Japan’s war dead, including some senior military and political figures convicted of serious crimes in the wake of the country’s World War II defeat.

But given the latest developments in the Japanese economy, any support he can get from appealing to nationalistic Japanese sentiments may be too little and too late. One gets the impression from the numbers released to day that Japan has hit sort of a financial perfect storm. The scariest number is probably that its trade deficit QUADRUPLED(!) from a year ago. All you can really say about that is it’s insane. Where the storm gets perfect is in the fact that although the yen fell close to 20% since Abe took the reins 17 months ago, exports are hardly up if at all. That is one huge defeat for Shinzo, since he caused that drop on purpose with the explicit goal of boosting exports. The flipside of that intentional devaluation is of course that imports get much more expensive, and the fall-out, pun intended, of the Fukushima disaster means the country needs to import a lot more – relatively expensive – oil and gas. Bloomberg:

Japan’s Trade Deficit Widens as Export Growth Weakens

Japan’s weakest export growth in a year spurred a wider-than-forecast trade deficit in March, adding to challenges for Prime Minister Shinzo Abe in steering the economy through the aftermath of an April 1 sales-tax rise. The 1.8% rise in the value of shipments overseas from a year earlier, reported today by the Ministry of Finance, compared with a 6.5% median estimate of 27 economists in a Bloomberg News survey. An 18.1% jump in imports helped widen the deficit to the biggest ever for the month. [..]

Export volumes fell 2.5% in March from a year earlier. At the same time, the Japanese currency’s 19% drop since Abe came to power in December 2012 has boosted import values, contributing to 21 straight monthly deficits – the longest slide in comparable data back to 1979. [..] The [trade] deficit quadrupled from a year earlier to 1.45 trillion yen ($14.1 billion), larger than a 1.08 trillion yen projection by economists. On a seasonally adjusted basis, the deficit grew to 1.71 trillion yen.

There may have been an 1.8% increase in export values from a year ago, but in Q1 2014 exports were even down from Q4 2013. Now, it’s obvious that the Japanese people may have spent more than they otherwise would have to avoid the April 1st sales tax hike, and that may have driven imports a little higher. But that also means that domestic consumption will fall going forward, and that’s another perfect hit against Abenomics, where the intended idea was to increase spending, in order to escape deflation. And who will seriously claim that the Japanese are likely to spend more when they see these numbers?

Many have seen their salaries plunge, and are looking worriedly at their savings. That started the entire deflation scenario in the first place, and Abenomics has been a gigantic failure in turning it around. As I predicted many times. If memory serves, the sales tax hike, from 5% to 8%, was supposed to bring $80 billion in revenues, meant to pay off national debt, but Abe spent $50 billion on measures to offset it, leaving a – hope for – extra $30 billion. Which is not a giant sum for the world’s third-biggest economy, and one that hardly seems worth scaring the pajamas off of all the sweet little elderly ladies for, kept up at night by nightmares about their pensions and savings.

Maybe Obama will come mainly to tell Abe goodbye, using some diplomatic version of “See ya, wouldn’t want to be ya”. Remember, Abenomics has not exactly been a free piece of policy, it’s involved a barrage of stimulus measures, and while people may lose count somewhere in between a 200% debt to GDP ratio and one way north of that, just wait till interest rates go up. Tokyo relies on those same elderly ladies to buy its sovereign bonds, but they won’t do that forever. FT:

Japan Posts Largest-Ever Trade Deficit (FT)

Japan suffered its largest-ever trade deficit last fiscal year, underlining a wrenching structural shift for an economy long renowned as an export powerhouse. The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134 billion), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s. Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012.

But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports. Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2% on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5%. “Import volume growth appeared stronger than we had envisaged,” said Hiromichi Shirakawa, the Swiss bank’s chief Japan economist. [..] National fuel imports jumped by 18% by value last year, according to Monday’s trade data…

Japan resembles a sinking ship more than anything else these days. The only parties that make out like bandits from Abenomics are the usual suspects, banks and other multinational corporations. And while they may be inclined to, or coerced into, invest their additional profits in Abe bonds for a while, they can buy Greek and Italian paper that has much higher yields that Japan’s 0.6% or so, and is implicitly guaranteed by the EU. And then Abe has another headache:

Fukushima No. 1 Boss Admits Water Woes Out Of Control

The manager of the Fukushima No. 1 nuclear power plant admits to embarrassment that repeated efforts have failed to bring under control the problem of radioactive water, eight months after Prime Minister Shinzo Abe told the world the matter had been resolved. Tokyo Electric Power Co., the plant’s operator, has been fighting a daily battle against contaminated water since Fukushima was wrecked by the March 2011 earthquake and tsunami. Abe’s government pledged half a billion dollars last year to tackle the issue, but progress has been limited. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Akira Ono told reporters touring the plant last week.

He was referring to the latest blunder at the plant: channeling contaminated water into the wrong building. Ono also acknowledged that many difficulties may have been rooted in Tepco’s focus on speed since the 2011 disaster. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said.

Three years after the quake, Japan still blunders its way through the aftermath. When is that going to change? When the sea water off Seattle and Vancouver turns radio-active? Wonder what Obama will have to tell Abe about this, and what part us proles will be allowed to hear about? Also wonder what the Japanese people will say when Abe, inevitably because of the dismal economic numbers, starts suggesting firing up the nukes again, and someone suggest it might have been a better idea to evacuate Tokyo after all.

Then again, I doubt it’ll all be Abe’s worry much longer anymore. Still, maybe we ourselves should worry a bit more about what happens when a nation and economy the size of Japan must begin sending out Mayday signals. By the looks of it, it will soon have its back against the wall. And that can lead to desperate things. Which I would think Abenomics already is/was, but that was domestic. What if the desperation starts looking beyond the Japanese borders?

Japan Posts Largest-Ever Trade Deficit (FT)

Japan suffered its largest-ever trade deficit last fiscal year, underlining a wrenching structural shift for an economy long renowned as an export powerhouse. The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134 billion), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s. Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012.

But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports. Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2% on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5%. “Import volume growth appeared stronger than we had envisaged,” said Hiromichi Shirakawa, the Swiss bank’s chief Japan economist.

Japan’s energy import bill has risen sharply in the wake of the Fukushima nuclear accident in 2011. All of the country’s operable atomic reactors are offline pending safely reviews, robbing Japan of a power source that provided 30% of its electricity before the disaster. Utilities have been forced to buy more foreign oil and gas to make up the difference, and a weaker yen has made each barrel that much pricier. National fuel imports jumped by 18% by value last year, according to Monday’s trade data. Japan’s economy has been growing for more than a year, but a dependence on domestic consumer spending has left it vulnerable, experts say, particularly given an increase in the national sales tax that took effect on April 1.

Experts expect gross domestic product to contract in the current quarter, in part because many consumers brought purchases forward to beat the tax rise, and the question is how quickly the economy will shake off the effects of the tax increase. Pre-tax-hike demand was likely responsible for some of the unusually sharp increase in imports, experts said, suggesting growth in the trade deficit could slow beginning this month. March’s deficit was Y1.45tn, higher than the roughly Y1tn average forecast of economists surveyed by Bloomberg.

Read more …

Japan’s Trade Deficit Widens as Export Growth Weakens (Bloomberg)

Japan’s weakest export growth in a year spurred a wider-than-forecast trade deficit in March, adding to challenges for Prime Minister Shinzo Abe in steering the economy through the aftermath of an April 1 sales-tax rise. The 1.8% rise in the value of shipments overseas from a year earlier, reported today by the Ministry of Finance, compared with a 6.5% median estimate of 27 economists in a Bloomberg News survey. An 18.1% jump in imports helped widen the deficit to the biggest ever for the month.

Exports by volume fell the most since June last year, suggesting external demand may fail to provide much support for an economy set to contract this quarter. A spending spree ahead of the tax increase boosted imports, already swollen by a surge in energy costs due to the yen’s slide and nuclear shutdowns. “In spite of the continued weaker yen, the performance of Japanese exporters is quite weak compared to competitors like Korea or Taiwan,” said Junko Nishioka, chief Japan economist at Royal Bank of Scotland Group Plc in Tokyo. The trade balance will deteriorate “unless the government decides to restart nuclear power plants,” she said.

The rush demand ahead of the tax increase could have prompted companies to divert shipments to the domestic market, rather than overseas, crimping export growth, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. Abe’s drive to shake off more than a decade of deflation and economic drift helped drive down the yen, boosting profits of exporters such as Toyota Motor Corp. even as shipment volumes remain sluggish. Export volumes fell 2.5% in March from a year earlier. At the same time, the Japanese currency’s 19% drop since Abe came to power in December 2012 has boosted import values, contributing to 21 straight monthly deficits – the longest slide in comparable data back to 1979. [..] The [trade] deficit quadrupled from a year earlier to 1.45 trillion yen ($14.1 billion), larger than a 1.08 trillion yen projection by economists. On a seasonally adjusted basis, the deficit grew to 1.71 trillion yen.

Read more …

Fukushima Manager Admits To ‘Embarrassing Failure’ (RT)

The manager of the stricken Fukushima nuclear power plant has admitted not having full control of the facility. Contrary to the statements of the Japanese PM, TEPCO’s Akira Ono said attempts to plug the leaks of radioactive water had failed. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Ono told reporters touring the plant this week, reported Reuters. Last year, the Japanese PM attempted to assure the world that the situation at the stricken nuclear power plant was under control. However, over the last couple of months the clean-up procedure at the plant has been fraught with difficulties.

Tokyo Electric Power Co (TEPCO), the plant’s operator, has consistently faced contaminated water leaks at the Fukushima plant.Water has to be pumped over the facilities stricken reactors in order to keep them from overheating, but this process creates large quantities of contaminated water which has to be stored in tanks on the site. Ono acknowledged to press that in TEPCO’s rush to deal with the stricken facility following the earthquake-triggered tsunami in 2011, the company may have made mistakes. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said. “But we were pressed to build tanks in a rush and may have not paid enough attention to quality. We need to improve quality from here.”

Read more …

Fukushima No. 1 Boss Admits Water Woes Out Of Control (Japan Times)

The manager of the Fukushima No. 1 nuclear power plant admits to embarrassment that repeated efforts have failed to bring under control the problem of radioactive water, eight months after Prime Minister Shinzo Abe told the world the matter had been resolved. Tokyo Electric Power Co., the plant’s operator, has been fighting a daily battle against contaminated water since Fukushima was wrecked by the March 2011 earthquake and tsunami. Abe’s government pledged half a billion dollars last year to tackle the issue, but progress has been limited. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Akira Ono told reporters touring the plant last week.

He was referring to the latest blunder at the plant: channeling contaminated water into the wrong building. Ono also acknowledged that many difficulties may have been rooted in Tepco’s focus on speed since the 2011 disaster. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said. “But we were pressed to build tanks in a rush and may have not paid enough attention to quality. We need to improve quality from here.” The Fukushima No. 1 plant, some 220 km northeast of Tokyo, suffered three reactor core meltdowns in the world’s worst nuclear disaster since Chernobyl in 1986.

The issue of contaminated water is at the core of the clean-up. Japan’s nuclear regulator and the International Atomic Energy Agency say a new controlled release into the sea of contaminated water may be needed to ease stretched capacity as the plant runs out of storage space. But this is predicated on the state-of-art ALPS (Advanced Liquid Processing System) project, which removes the most dangerous nuclides, becoming fully operational. The system has functioned only during periodic tests.

Read more …

China lets banks fail, even small ones, and it risks bank runs up the wazoo. Will they risk it?

Moving to Protect Depositers, China Signals Some Banks Could Fail (Bloomberg)

Chinese Premier Li Keqiang’s plan to introduce deposit insurance is meant to comfort the nation’s savers as bad loans mount. In the bond market, it’s fueling speculation he’s preparing to let some banks collapse. Authorities may tolerate failures of smaller banks once depositor safeguards are in place, Kwong Li, chief executive officer of China Lianhe Credit Rating Co. said. Among lender bonds rated at or below AA, the extra yield investors demand to hold the 2022 securities of China Bohai Bank in the northern city of Tianjin surged to an 11-month high of 245 basis points on April 17. The premium on the notes due 2019 of Harbin Bank, a lender near China’s border with Russia, has jumped 41 basis points in the past year to 217.

“With the deposit insurance coming online, the government is signaling they may be willing to let some of the smaller banks default or be consolidated,” Li said in an interview in Shanghai on April 15. Bank defaults “probably won’t happen until deposit insurance is in place.” Lianhe Credit is Fitch Ratings Ltd.’s China joint venture. Premier Li pledged last month to introduce protection for savers this year as he shifts toward letting the market set rates, a move that may push up borrowing costs for smaller lenders even as it forces them to pay higher interest to depositors. Almost 1,000 customers rushed to outlets of Jiangsu Sheyang Rural Commercial Bank on March 24 amid rumors the lender may go bankrupt, Xinhua News Agency reported March 26.

Read more …

Beijing wants full banking power, but it’s llike trying to hold on to an eel with your hands. Slippery stuff.

China Heightens Alert Over Illegal Funds As Internet Finance Booms (Reuters)

The fast development of internet finance in China is driving an increase in cases of illegal fund raising, a situation that could worsen if regulation does not catch up, a senior official at the country’s banking sector watchdog said on Monday. Liu Zhangjun, a director at the China Banking Regulatory Commission (CBRC) in charge of combating illegal fund-raising, said some of the recent cases have been disguised as normal online financial services, requiring tighter scrutiny. He particularly singled out cases conducted in the name of “crowd funding” and “P2P lending”, two types of internet finance that are gaining increasing popularity among China’s vast number of depositors.

“As internet finance is developing rapidly, many illegal funding activities are moving from offline to online,” Liu told a media briefing jointly held with the Ministry of Public Security and the Supreme Court. “Some lawbreakers are seeking loopholes left by a regulatory vacuum and blurred legal boundaries for new forms of financing,” he added. Beijing has consistently taken a very harsh stance towards illegal fund-raising, a term usually used to describe deposit-taking from the public by people without licences to do so, because it can lead to financial market disorder and threaten social stability.

Read more …

An inter-family feud?

China Signals Change As It Investigates A Family’s Riches (NY Times)

His son landed contracts to sell equipment to state oil fields and thousands of filling stations across China. His son’s mother-in-law held stakes in pipelines and natural gas pumps from Sichuan Province in the west to the southern isle of Hainan. And his sister-in-law, working from one of Beijing’s most prestigious office buildings, invested in mines, property and energy projects. In thousands of pages of corporate documents describing these ventures, the name that never appears is his own: Zhou Yongkang, the formidable Chinese Communist Party leader who served as China’s top security official and the de facto boss of its oil industry.

But President Xi Jinping has targeted Mr. Zhou in an extraordinary corruption inquiry, a first for a Chinese party leader of Mr. Zhou’s rank, and put his family’s extensive business interests in the cross hairs. Even by the cutthroat standards of Chinese politics, it is a bold maneuver. The finances of the families of senior leaders are among the deepest and most politically delicate secrets in China. The party has for years followed a tacit rule that relatives of the elite could prosper from the country’s economic opening, which rewarded loyalty and helped avert rifts in the leadership. Whether to wipe out Mr. Zhou’s influence or to send an unmistakable signal to the entire party elite, Mr. Xi appears to be rewriting the rules. He has widened the inquiry into Mr. Zhou to include his wife, a son, a brother, a sister-in-law, a daughter-in-law and the son’s father-in-law, all of whom have been taken away by the authorities in recent months, according to relatives and witnesses. [..]

Some political analysts argue that a leader of Mr. Zhou’s status would not face an inquiry of this kind unless Mr. Xi regarded him as a direct threat to his power. In other words, Mr. Zhou is the loser in a political struggle. His family’s financial dealings lost their immunity only because Mr. Zhou fell from favor, not because elite business dealings were being criminalized. But another school of thought is that Mr. Xi considers the enormous agglomeration of wealth by spouses, children and siblings of top-ranking officials a threat to China’s stability by encouraging mercenary corruption and harming the party’s public standing.

Read more …

Ukraine Must Solve Crisis Itself To Avoid Bloodshed, IMF Debt Slavery (RT)

Mediation won’t resolve the crisis in Ukraine, as all international players have their own interests there, Wide Awake News founder Charlie McGrath told RT, adding that only the Ukrainians can drag their country out of the current “quagmire.” The document on de-escalation – which Russia, the US, the EU, and Ukraine agreed on – is unlikely to fulfill its purpose and bring peace to the crisis-hit country, McGrath stressed. With all the international players involved in the Geneva deal and having their own interests in Ukraine, the country finds itself “caught in the middle of an old school-style, Cold War-type battle,” the Wide Awake News founder explained.

Moscow is looking for greater influence in its neighbor state because “there’s a lot of wealth that’s transferred to Ukraine via Russia through natural gas pipelines,” he said. “NATO wants to step up and get that much closer to Russia; they want more presence inside Eastern Europe,” the journalist said, adding that Poland is already using the accession of Ukraine’s Republic of Crimea into Russia “as a great excuse” to put US troops on its territory. According to McGrath, the International Monetary Fund “is eager to get its claws into Ukraine and sap the natural resources and the natural trade routes” that the former Soviet state possesses. What Washington really wants is “to implement austerity on Ukraine,” as it keeps “dangling this carrot of foreign aid” before the coup-imposed authorities in Kiev, he said.

If financial support from the IMF arrives in Ukraine, it will only help the banks – turning the population into “nothing more than debt slaves, like we’ve seen in other nations throughout Europe,” the journalist warned. McGrath also reminded that the events in Ukraine “aren’t an accident,” with the US contributing largely to the turmoil. “You don’t need to take a journalist’s word for it on RT. You can listen to Dennis Kucinich, the Congressman for the US, he pointed out on a recent interview with Bill O’Reilly on FOX News that there were quasi-government agencies that spent billions of dollars, 65+ programs to destabilize the elected government of Ukraine,” he stressed.

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“I guess it still doesn’t occur to most that housing had its Fed, new-era investor, and liquidity induced ‘short squeeze’, which pulled everybody into the pool at the same time … “

It’s Back Again – Housing Stimulus Hangover! (Mark Hanson)

Bank Of America Merryl Lynch kinda shocked me last week by lowering its resi investment GDP growth forecast by 33%, citing this is “not a v-shaped recovery” and “we must be patient”. Say what?!? For the past two years house prices — on the heels of nuclear-option rates intervention and the new-era, all-cash investor class — have “vee’d” greater than any time in history, even 2003 to 2007. Moreover, years of headlines of “lines around corner”, and “50 bidders on every house” were either on, or never far from, any front page worldwide. So, now BOAML is back-peddling, saying that we are in the early stages of a recovery and have to be ‘patient’ for the real-deal, durability and escape velocity to take place??? This is twilight zone stuff.

I guess it still doesn’t occur to most that housing had its Fed, new-era investor, and liquidity induced ‘short squeeze’, which pulled everybody into the pool at the same time, filled all the pent-up demand and pulled even more forward. And now, just like in 2007 and again following the tax-credit in 2010, the sector is in the midst of a “stimulus hangover” at which time housing “resets to end-user fundamentals”, meaning much lower volumes and prices. We are already seeing the demand destruction, which always precedes lower prices.

BOAML reduced its residential investment’s contribution to GDP by 33% for 2014. However, this is still a best case scenario. Moreover, they failed to include the GDP headwind from the loss of foreclosures and short sales, which require the exact same labor and materials as builders use to start houses and which dwarfed the ML’s 100k starts reduction for years leading into 2014. Lastly, they still need to downgrade Existing Sales, on which the broker commission component to GDP by itself is 60% of total builder residential investment.

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Wall Street Deregulation Pushed By Clinton Advisers (Guardian)

Wall Street deregulation, blamed for deepening the banking crisis, was aggressively pushed by advisers to Bill Clinton who have also been at the heart of current White House policy-making, according to newly disclosed documents from his presidential library. The previously restricted papers reveal two separate attempts, in 1995 and 1997, to hurry Clinton into supporting a repeal of the Depression-era Glass Steagall Act and allow investment banks, insurers and retail banks to merge.

A Financial Services Modernization Act was passed by Congress in 1999, giving retrospective clearance to the 1998 merger of Citigroup and Travelers Group and unleashing a wave of Wall Street consolidation that was later blamed for forcing taxpayers to spend billions bailing out the enlarged banks after the sub-prime mortgage crisis. The White House papers show only limited discussion of the risks of such deregulation, but include a private note which reveals that details of a deal with Citigroup to clear its merger in advance of the legislation were deleted from official documents, for fear of it leaking out. “Please eat this paper after you have read this,” jokes the hand-written 1998 note addressed to Gene Sperling, then director of Clinton’s National Economic Council.

Earlier, in February 1995, newly-appointed Treasury secretary Robert Rubin, his deputy Bo Cutter and senior advisers including John Podesta gave the president three days to decide whether to back a repeal of Glass-Steagall. In what Cutter described as “an action forcing event”, he wrote to Clinton on 21 February, telling him Rubin wanted to announce the policy before it was raised by the House banking committee on 1 March. “In order to position Secretary Rubin – rather than any of the regulators – as the Administration’s chief spokesman on this issue, the Secretary intends to discuss the Administration’s position at a speech which will be covered by the press in New York on 27 February,” wrote Cutter on 21 February.

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Excerpt from – former Reagan Tresury department – Stockman’s book. Very good reading. Who needs a fantasy horror story when you have this?

FDR’s Hayseed Coalition: Roots Of Modern Money Printing (Stockman)

It was not the anti-gold fulminations of J. M. Keynes at the time of the British crisis in 1931 that finally brought down the gold standard and sound money. Instead, its real demise came two years later in the form of the Thomas Amendment, a powerful expression of the monetary populism which animated FDR’s hayseed coalition. The amendment was hatched at midnight on April 18 1933, during FDR’s famous White House rendezvous with the fiery leader of the hard-scrabble farm belt, and embodied four “discretionary” presidential options to debauch the gold dollar. These measures have been dismissed by historians as a casual sop by FDR to farm state radicals, but they could not be more mistaken.

The Thomas Amendment was a nascent version of today’s delusion that economic setbacks, shortfalls, and disappointments are caused by too little money. The true cause, both in the early 1930s and today, was actually an excess of debt. This explanation is never appealing to politicians because there is no real cure for the liquidation of excess debt, except the passage of time and the forfeiture of the ill-gotten gains from the financial bubbles preceding it. By contrast, the populists of the New Deal era believed that the state could easily and quickly remedy a shortage of money by printing more of it. In this respect they are in a line of descent that extends to the depredations of the Bernanke Fed in the present era.

The line of continuity started with FDR and Senator Thomas and included the latter’s guru, Professor Irving Fisher of Yale. It then extended into the present era via Professor Milton Friedman of Chicago, who embraced wholeheartedly Fisher’s quirky theory of deflation. The latter, in turn, became the virtual obsession of Friedman’s acolyte, Professor Bernanke of Princeton, whose academic work is based on Friedman’s erroneous interpretation of the Great Depression. Upon becoming chairman of the Fed, Bernanke then foisted the Fisher-Thomas-Friedman deflation theory upon the nation’s economy in a panicked response to the Wall Street meltdown of September 2008. Yet monetary deflation was no more the cause of the 2008 crisis than it had been the cause of the Great Depression.

The monetary populists of the 1920s and 1930s, including Professor Fisher, had “cause and effect” backward. The sharp reduction after 1929 in the money supply was an inexorable consequence of the liquidation of bad debt, not an avoidable cause of the depression. The measured money supply (M1) even in those times consisted mostly of bank deposit money rather than hand-to-hand currency. And checking account money had declined sharply as an arithmetic consequence of the collapse of what had previously been a fifteen-year buildup of bad loans and speculative credit.

During 1929–1933 commercial bank loans outstanding declined from $36 billion to $16 billion. Not surprisingly, as customer loan balances fell sharply, so did checking accounts or what can be termed “bank deposit money” as opposed to currency in circulation. The latter actually grew by $1.1 billion during the four years after 1929, to about $5.5 billion. By contrast, it was the loan-driven checking account portion of M1 which dried up, declining from $25 billion to $17 billion over the same period. And the reason was no mystery: the way banks create demand deposits is to first issue loan credits to their customers. Indeed, in the modern world money supply follows credit, and rarely do central bankers inordinately restrict the growth of the latter.

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Bleak Future For Australian Manufacturing (FT)

Ford’s normally busy factory is deserted and eerily quiet. For two weeks the carmaker and dozens of its component suppliers are on a temporary shutdown to cut costs amid slack demand. “Far worse is coming,” says Anthony Anderson, a shop steward who has worked for 30 years at the plant in Geelong, a coastal city of 225,000 people deep in Australia’s manufacturing heartland near Melbourne. “This assembly plant is closing in two years and with it will go thousands of jobs at component suppliers across the region,” he says.

It is almost a year since Ford said it would stop making cars in Australia, blaming a strong Aussie dollar, high labor costs and Asian competition. General Motors and Toyota followed when the new government declined to offer extra subsidies, declaring an end to an “era of entitlement” that saw carmakers gobble A$30 billion (US$28 billion) in taxpayer assistance between 1997 and 2012. Several thousand direct jobs will be lost by 2017 and a further 40,000 suppliers jobs are under threat as the curtain comes down on a century of car manufacturing Down Under. The demise of such an iconic industry is raising questions about the viability of other manufacturing sectors and whether Australia has become too expensive to make things.

“Australian manufacturing has been in relative decline as a share of the economy and of employment for the past 30 years, much like the UK,” says Ivan Colhoun, economist at ANZ bank. “That trend seems likely to continue.” Australia’s small market, high wages, a strong currency and Canberra’s decision to stop corporate handouts were negative forces affecting the sector, he says. The crunch in manufacturing intensified in the global financial crisis, with 77,000 jobs lost between 2007 and 2012, reducing employment in the sector to 967,000 or 8% of the workforce. The industry’s troubles, when combined with a sharp slowdown in mining investment, pose a threat to Australia’s record of 22 years of consecutive economic growth.

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Nomi Prins has something to say.

“We are in great danger”: Ex-Banker Details How Mega-Banks Destroyed America (Salon)

“It no longer matters who sits in the White House,” former Goldman Sachs managing director Nomi Prins writes in her new book “All the Presidents’ Bankers: The Hidden Alliances That Drive American Power.” “Presidents no longer even try to garner banker support for population-friendly policies, and bankers operate oblivious to the needs of national economies. There is no counterbalance to their power.” Prins, who also worked for Bear Stearns, Lehman Brothers and Chase Manhattan Bank, is now a fellow at the think tank Demos and a member of Sen. Bernie Sanders’ Federal Reserve Advisory Council. Salon spoke with Prins about a century of presidential coziness with bankers; Barney Frank’s defense of big banks’ power; and how to “break the alliances” before they “break us.” A condensed version of our conversation follows.

It’s no secret that big banks play a big role in shaping U.S. banking policy. Your book argues they play a big role in all kinds of areas, like foreign policy. How broad, deep and consistent is the role of big banks in U.S. policymaking?

Throughout the century that I examined, which began with the Panic of 1907 … what I found by accessing the archives of each president is that through many events and periods, particular bankers were in constant communication [with the White House] — not just about financial and economic policy, and by extension trade policy, but also about aspects of World War I, or World War II, or the Cold War, in terms of the expansion that America was undergoing as a superpower in the world, politically, buoyed by the financial expansion of the banking community.

And in what direction did that move policy? How did those policies become different than they would have without the bankers’ influence?

It was more a question of each group, in government and in the financial community, working together to push the same policies. So, for example, in the beginning of World War I, Woodrow Wilson had adopted initially a policy of neutrality. But the Morgan Bank, which was the most powerful bank at the time, and which wound up funding over 75% of the financing for the allied forces during World War I … pushed Wilson out of neutrality sooner than he might have done, because of their desire to be involved on one side of the war.

Now, on the other side of that war, for example, was the National City Bank, which, though they worked with Morgan in financing the French and the British, they also didn’t have a problem working with financing some things on the German side, as did Chase … When Eisenhower became president … the U.S. was undergoing this expansion by providing, under his doctrine, military aid and support to countries [under] the so-called threat of being taken over by communism … What bankers did was they opened up hubs, in areas such as Cuba, in areas such as Beirut and Lebanon, where the U.S. also wanted to gain a stronghold in their Cold War fight against the Soviet Union. And so the juxtaposition of finance and foreign policy were very much aligned.

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My Twitter pen-pal and Automatic Earth devotee Jesse Colombo has made it to the pages of Forbes, where he wrote an assessment of New Zealand’s economy that wasn’t particularly likes, but got a lot of media.

12 Reasons Why New Zealand’s Economic Bubble Will End In Disaster (Colombo)

New Zealand’s economy has been hailed as one of world’s top safe-haven economies in recent years after it emerged from Global Financial Crisis relatively unscathed. Unfortunately, my research has found that many of today’s so-called safe-havens (such as Singapore) are experiencing economic bubbles that are strikingly similar to those that led to the financial crisis in the first place. [..] Here are the reasons why I believe that New Zealand’s economy is heading for a crisis:

1) Interest rates have been at all-time lows for almost a half-decade
2) Property prices have doubled since 2004
3) New Zealand has the world’s third most overvalued property market
4) New Zealand’s mortgage bubble grew by 165% since 2002
5) Nearly half of mortgages have floating interest rates
6) Mortgages account for 60% of banks’ loan portfolios
7) Finance, not agriculture, is New Zealand’s largest industry
8) New Zealand’s banks are exposed to Australia’s bubble
9) Australian and Chinese buyers are inflating the property bubble
10) New Zealand has a household debt problem
11) Government overseas debt has nearly tripled since 2008
12) The New Zealand dollar is overvalued

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And Jesse even had the government react.

It’s Not A Bubble Until It’s Officially Denied, New Zealand Edition (Colombo)

What an Easter weekend it’s been. On Thursday, I published a piece called “12 Reasons Why New Zealand’s Economic Bubble Will End In Disaster” in which I summarized my research on the Pacific island’s growing property and credit bubble. In just a few days, this article went viral and received over 85,000 views and nearly 8,000 shares on social media. This bubble warning created a media firestorm, making numerous news headlines, landed me a prime time appearance on TVNZ, and made the cover story of The Herald on Sunday.

My bubble warning also led to something that I’ve become quite familiar with lately: an official denial from Economic Development Minister Steven Joyce. This makes the fourth official bubble denial I’ve experienced in the past several months, with the first three coming from officials in Malaysia, the Philippines, and Singapore.

After having experienced official bubble denials before, I have stopped taking them seriously because I now realize that they are simply standard responses that add little intellectual substance to the discussion. While I bring facts and statistics to the table, the official bubble deniers typically attempt to attack my credibility and write me off as a “doom and gloomer.” In response to my warnings about credit and property prices doubling or tripling in just a decade, I receive pat answers such as “our banks have prudent lending standards” and “property prices are rising because of a shortage” (after all, it’s always a “shortage” – never a bubble). It doesn’t matter what country I’m warning about, the official bubble denials are essentially the same.

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Lovely.

US Court Denies Attorney-Client Privilege (Simon Black)

In the Land of the Free, people grow up hearing a lot of things about their freedom. You’re told that you live in the freest country on the planet. You’re told that other nations ‘hate you’ for your freedom. And you’re told that you have the most open and fair justice system in the world. This justice system is supposedly founded on bedrock principles– things like a defendant being presumed innocent until proven guilty. The right to due process and an impartial hearing. The right to counsel and attorney-client privilege. Yet each of these core pillars has been systematically dismantled over the years:

1. So that it can operate with impunity outside of the law, the federal government has set up its own secret FISA courts to rubber stamp NSA surveillance. According to data obtained by the Electronic Privacy Information Center, of the nearly 34,000 surveillance requests made to FISA courts in the last 35-years, only ELEVEN have been rejected. Unsurprising given that FISA courts only hear the case from the government’s perspective. It is literally a one-sided argument in FISA courts. Hardly an impartial hearing, no?

2. The concept of ‘innocent until proven guilty’ may officially exist in courts, but administratively it was thrown out long ago. These days there are hundreds of local, state, and federal agencies that can confiscate your assets, levy your bank account, and freeze you out of your life’s savings. None of this requires a court order. By the time a case goes to court, you have been deprived of the resources you need to defend yourself. You might technically be presumed innocent, but you have been treated and punished like a criminal from day one.

3. Attorney-Client privilege is a long-standing legal concept which ensures that communication between an attorney and his/her client is completely private. In Upjohn vs. the United States, the Supreme Court itself upheld attorney-client privilege as necessary “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law. . .” It doesn’t matter what you’re accused of – theft, treason, triple homicide. With very limited exceptions, an attorney cannot be compelled to testify against a client, nor can their communications be subpoenaed for evidence.

Yet in a United States Tax Court decision announced on Wednesday, the court dismissed attorney client privilege, stating that: “When a person puts into issue his subjective intent in deciding how to comply with the law, he may forfeit the privilege afforded attorney-client communications.” In other words, if a person works with legal counsel within the confines of the tax code to legitimately minimize the amount of taxes owed, that communication is no longer protected by attorney-client privilege. Furthermore, the ruling states that if the individuals do not submit attorney-client documentation as required, then the court would prohibit them from introducing any evidence to demonstrate their innocence.

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All we need to see from here is polluted Chinese fire, and we’ll have all 4 basic elements corrupted for 1.3 billion people.

China’s Water Is Worse Than Its Air (Bloomberg)

In recent months, Chinese leaders have pledged drastic steps to clear their nation’s smog-choked air. The bigger question, though, may be how far they’re willing to go to clean up its water. Say one thing for the lung-burning pollution that regularly blankets Beijing and other cities: At least everyone can see the problem. In contrast, a recent benzene spill that poisoned the water supply of Lanzhou – a city of more than 2 million people – was terrifyingly odorless and colorless. If anything, polluted water poses a more insidious threat to Chinese people than dirty air does. 70% of the groundwater in the heavily populated north China plain has become unfit for human touch, let alone drinking or irrigation. Because the area encompasses several of the country’s largest farming provinces, crops and livestock are exposed to dangerous contaminants as well. The 9 in 10 Chinese who say they’re “highly concerned” about the safety of their food and water have reason to be alarmed.

Authorities have shown they can restore blue skies, at least temporarily, as they did during the 2008 Beijing Olympics. Cleaning up China’s water will be more difficult, time-consuming and expensive. Industries that pollute water are not concentrated in a few places, as coal-fired power plants are, but spread out across thousands of localities. And dirty water is harder to assess than gritty air; discharges have to be measured near the source. In any case, industry accounts for only half of water pollution. The rest comes from millions of small farmers and livestock producers, whose fertilizers, pesticides and waste runoff leach undetected into the water table.

The sheer scale of the problem demands root-and-branch reforms — the kind that Chinese academics and activists have long promoted but the government has been reluctant to make. A new environmental law, for instance, may include tougher penalties: Violators who ordinarily pay cheap fines and then continue to pollute would be subject to daily, unlimited penalties and possible criminal charges. But this law is in its fourth draft and still undergoing revisions, and there’s no guarantee the stronger penalties will survive to the final version.

Even if they do, they will be of little use unless China’s Ministry of Environmental Protection is given greater power. As things stand, so many agencies have a say in environmental oversight, it’s almost impossible to take strong, swift action. Groundwater monitoring alone is overseen by three different ministries, as China Water Risk, a nonprofit watchdog based in Hong Kong, points out, and this makes enforcement slow and ineffective. Talk of merging ministries or responsibilities into the MEP has so far gone nowhere.

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Street cams are so ubiquitous in the UK, nobody really thinks much about them anymore.

Vast Network Of Street Cams Pose ‘Very Real Risk’ To Britons’ Privacy (Independent)

Members of the public face “a very real risk” to their privacy from the huge roadside surveillance network that captures millions of motorists every day, the Government’s Surveillance Commissioner has warned. In an interview with The Independent, Tony Porter urges that clear guidance be provided to ensure “innocent” people do not fall victim to roadside automatic number plate recognition (ANPR) cameras which have been the centre of concerns over the rise of surveillance in Britain. The regulator for Britain’s state-run security cameras has put police on notice over their use of personal data after a series of investigations into the ANPR system, which has been described by campaigners as the “biggest surveillance network that most people have never heard of”.

The use of the system is part of wider concerns over a growing “surveillance society” as Mr Porter revealed how cheap home CCTV cameras have led to a surge in snooping disputes between neighbours. Local authorities control more than 50,000 cameras while thousands of roadside cameras collect owner information on more than 18 million car journeys every day, in a swift and unregulated expansion over the past 30 years. Police have declined to say how many cameras are used for the ANPR system, but it has the capacity to check information on up to 50 million cars every day, and cross-check it with other police databases to trace wanted offenders.

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